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E-commerce business. technology. society. Third Edition Kenneth C. Laudon Carol Guercio Traver 1 E-commerce business. technology. society. Third Edition Kenneth C. Laudon Carol Guercio Traver 1

Chapter 7 E-commerce Marketing Concepts Copyright © 2007 Pearson Education, Inc. 2 Chapter 7 E-commerce Marketing Concepts Copyright © 2007 Pearson Education, Inc. 2

Net. Flix Develops and Defends Its Brand Class Discussion n n n What was Net. Flix Develops and Defends Its Brand Class Discussion n n n What was Net. Flix’s first business model? Why did this model not work and what new model did it develop? Why is Net. Flix attractive to customers? How does Net. Flix distribute its videos? What is Net. Flix’s “recommender system? ” How does Net. Flix use data mining? Is video on demand a threat to Net. Flix? Copyright © 2007 Pearson Education, Inc. 3

Consumers Online: The Internet Audience and Consumer Behavior Around 175 million Americans (67% of Consumers Online: The Internet Audience and Consumer Behavior Around 175 million Americans (67% of total population) had Internet access in 2005 n Growth rate has slowed n Intensity and scope of use both increasing n Copyright © 2007 Pearson Education, Inc. 4

Internet Audience and Consumer Behavior Some demographic groups have much higher percentages of online Internet Audience and Consumer Behavior Some demographic groups have much higher percentages of online usage than other groups n Demographics to examine include: § Gender § Age § Ethnicity § Community Type § Income § Education n Copyright © 2007 Pearson Education, Inc. 5

Type of Internet Connection: Broadband Impacts 52 million Americans had broadband access by end Type of Internet Connection: Broadband Impacts 52 million Americans had broadband access by end of 2005 n Broadband audience quite different from dialup audience: § Wealthier § More educated § More middle-aged § Greater intensity and scope of use n Copyright © 2007 Pearson Education, Inc. 6

Lifestyle Impacts Intense Internet usage may cause a decline in traditional social activities n Lifestyle Impacts Intense Internet usage may cause a decline in traditional social activities n Social development of children using Internet intensively instead of engaging in face-to-face interactions or undirected play may also be negatively impacted n The more time people spend on the Internet, the less time spent using traditional media n Copyright © 2007 Pearson Education, Inc. 7

Consumer Behavior Models Attempt to predict/explain what consumers purchase and where, when, how much Consumer Behavior Models Attempt to predict/explain what consumers purchase and where, when, how much and why they buy. n Consumer behavior models based on background demographic factors and other intervening, more immediate variables n Copyright © 2007 Pearson Education, Inc. 8

A General Model of Consumer Behavior Figure 7. 1, Page 367 SOURCE: Adapted from A General Model of Consumer Behavior Figure 7. 1, Page 367 SOURCE: Adapted from Kotler and Armstrong, 2006. 9

Background Demographic Factors Cultural n Culture and subculture n Social n Reference groups n Background Demographic Factors Cultural n Culture and subculture n Social n Reference groups n Direct n Indirect n Opinion leaders (viral influencers) n Lifestyle groups n Psychological profiles n Copyright © 2007 Pearson Education, Inc. 10

Factors That Predict Online Buying Behavior Figure 7. 2, Page 371 SOURCE: Lohse Bellman, Factors That Predict Online Buying Behavior Figure 7. 2, Page 371 SOURCE: Lohse Bellman, and Johnson, 2000. 11

The Purchasing Decision n Five stages in the consumer decision process: § Awareness of The Purchasing Decision n Five stages in the consumer decision process: § Awareness of need § Search for more information § Evaluation of alternatives § Actual purchase decision § Post-purchase contact with firm Copyright © 2007 Pearson Education, Inc. 12

The Consumer Decision Process and Supporting Communications Figure 7. 3, Page 371 13 The Consumer Decision Process and Supporting Communications Figure 7. 3, Page 371 13

A Model of Online Consumer Behavior n Adds two new factors: § Web site A Model of Online Consumer Behavior n Adds two new factors: § Web site capabilities § Consumer clickstream behavior Copyright © 2007 Pearson Education, Inc. 14

A Model of Online Consumer Behavior Figure 7. 4, Page 372 15 A Model of Online Consumer Behavior Figure 7. 4, Page 372 15

Shoppers: Browsers and Buyers About 63% of online users purchase online; an additional 12% Shoppers: Browsers and Buyers About 63% of online users purchase online; an additional 12% research online, but purchase offline n Significance of online browsing for offline purchasing and vice versa should not be underestimated n E-commerce and traditional commerce are coupled and should be viewed by merchants and researchers as part of a continuum of consuming behavior n Copyright © 2007 Pearson Education, Inc. 16

Online Shoppers and Buyers Figure 7. 5, Page 375 SOURCE: Based on data from Online Shoppers and Buyers Figure 7. 5, Page 375 SOURCE: Based on data from e. Marketer, Inc. , 2005 a; Shop. org, 2005; authors’ estimates. 17

What Consumers Shop for and Buy Online n Online sales divided roughly into small What Consumers Shop for and Buy Online n Online sales divided roughly into small ticket and big ticket items n Top small ticket categories (apparel, books, office supplies, software, etc. ) have similar characteristics—sold by first movers, small purchase price, physically small, high margin items, broad selection of products available n Purchases of big ticket items (travel, computer hardware, consumer electronics) expanding Copyright © 2007 Pearson Education, Inc. 18

What Consumers Buy Online—Small Ticket Items Figure 7. 6, Page 376 SOURCE: Based on What Consumers Buy Online—Small Ticket Items Figure 7. 6, Page 376 SOURCE: Based on data from e. Marketer, Inc. , 2004 b. 19

What Consumers Buy Online—Large Ticket Items Figure 7. 6, Page 376 SOURCE: Based on What Consumers Buy Online—Large Ticket Items Figure 7. 6, Page 376 SOURCE: Based on data from e. Marketer, Inc. , 2004 b. 20

Intentional Acts: How Shoppers Find Vendors Online Over 85% of shoppers find vendor sites Intentional Acts: How Shoppers Find Vendors Online Over 85% of shoppers find vendor sites by typing product or store/brand name into search engine or going directly to the site n Most online shoppers plan to purchase product within a week, either online or at a store n Most online shoppers have a specific item in mind n Copyright © 2007 Pearson Education, Inc. 21

Why More People Don’t Shop Online n Major online buying concerns: n Security n Why More People Don’t Shop Online n Major online buying concerns: n Security n Privacy n Shipping costs n Return policy n Product availability n Shipping issues/delays Copyright © 2007 Pearson Education, Inc. 22

Trust, Utility, and Opportunism in Online Markets n n n Trust and utility among Trust, Utility, and Opportunism in Online Markets n n n Trust and utility among the most important factors shaping decision to purchase online Consumers are looking for utility (better prices, convenience) Asymmetry of information can lead to opportunistic behavior by sellers Consumers also need to trust merchants before willing to purchase Sellers can develop trust by building strong reputations for honesty, fairness, delivery Copyright © 2007 Pearson Education, Inc. 23

Basic Marketing Concepts Marketing: The strategies and actions firms take to establish a relationship Basic Marketing Concepts Marketing: The strategies and actions firms take to establish a relationship with a consumer and encourage purchases of products and services n Internet marketing: Using the Web, as well as traditional channels, to develop a positive, long-term relationship with customers, thereby creating competitive advantage for the firm by allowing it to charge a higher price for products or services than its competitors can charge n Copyright © 2007 Pearson Education, Inc. 24

Basic Marketing Concepts (cont’d) Firms within an industry compete with one another on four Basic Marketing Concepts (cont’d) Firms within an industry compete with one another on four dimensions: § Differentiation § Cost § Focus § Scope n Marketing seeks to create unique, highly differentiated products or services that are produced or supplied by one trusted firm (“little monopolies”) n Copyright © 2007 Pearson Education, Inc. 25

Feature Sets Defines as the bundle of capabilities and services offered by the product Feature Sets Defines as the bundle of capabilities and services offered by the product or service n Includes: § Core product § Actual product § Augmented product n Copyright © 2007 Pearson Education, Inc. 26

Feature Set Figure 7. 7, Page 379 SOURCE: Kotler and Armstrong, 2006. 27 Feature Set Figure 7. 7, Page 379 SOURCE: Kotler and Armstrong, 2006. 27

Products, Brands and the Branding Process n n n Brand: A set of expectations Products, Brands and the Branding Process n n n Brand: A set of expectations that consumers have when consuming, or thinking about consuming, a product or service from a specific company Branding: The process of brand creation Closed loop marketing: When marketers are able to directly influence the design of the core product based on market research and feedback § E-commerce enhances the ability to achieve Brand strategy: Set of plans for differentiating a product from its competitor, and communicating these differences to the marketplace Brand equity: estimated value of the premium customers are willing to pay for a branded product versus unbranded competitor Copyright © 2007 Pearson Education, Inc. 28

Marketing Activities: From Products to Brands Figure 7. 8, Page 381 29 Marketing Activities: From Products to Brands Figure 7. 8, Page 381 29

Are Brands Rational? For consumers, a qualified yes: § Brands introduce market efficiency by Are Brands Rational? For consumers, a qualified yes: § Brands introduce market efficiency by reducing search and decision-making costs n For business firms, a definite yes: § Brands lower customer acquisition cost § Brands increase customer retention § Successful brand constitutes a long-lasting (although not necessarily permanent) unfair competitive advantage n Copyright © 2007 Pearson Education, Inc. 30

Can Brands Survive the Internet? Brands and Price Dispersion Researchers initially postulated that Web Can Brands Survive the Internet? Brands and Price Dispersion Researchers initially postulated that Web would result in “Law of One Price” n Did not occur, and e-commerce firms continue to rely heavily on brands to attract customers and charge premium prices n Price dispersion – the difference between the highest and lowest prices in a market n Research evidence indicates that brands are alive and well on the Internet, and that consumers are willing to pay premium prices for products and services they view as differentiated n Copyright © 2007 Pearson Education, Inc. 31

Internet Marketing Technologies n n n Web transaction logs Cookies and Web bugs Databases, Internet Marketing Technologies n n n Web transaction logs Cookies and Web bugs Databases, data warehouses, and data mining Advertising networks Customer relationship management (CRM) systems Copyright © 2007 Pearson Education, Inc. 32

The Revolution in Internet Marketing Technologies n Three broad impacts: § Internet has broadened The Revolution in Internet Marketing Technologies n Three broad impacts: § Internet has broadened the scope of marketing communications § Internet has increased the richness of marketing communications § Internet has greatly expanded the information intensity of the marketplace Copyright © 2007 Pearson Education, Inc. 33

Web Transaction Logs Built into Web server software n Records user activity at a Web Transaction Logs Built into Web server software n Records user activity at a Web site n Web. Trends a leading log analysis tool n Can provide treasure trove of marketing information, particularly when combined with: § Registration forms § Shopping cart database n Copyright © 2007 Pearson Education, Inc. 34

Cookies Small text file that Web sites place on a visitor’s client computer every Cookies Small text file that Web sites place on a visitor’s client computer every time they visit, and during the visit as specific pages are accessed n Cookies provide Web marketers with a very quick means of identifying the customer and understanding his or her prior behavior n Location of cookie files on computer depends on browser version n Copyright © 2007 Pearson Education, Inc. 35

Netscape Cookie Manager Figure 7. 11, Page 391 36 Netscape Cookie Manager Figure 7. 11, Page 391 36

Web Bugs Tiny (1 pixel) graphic files embedded in e-mail messages and on Web Web Bugs Tiny (1 pixel) graphic files embedded in e-mail messages and on Web sites n Used to automatically transmit information about the user and the page being viewed to a monitoring server n Copyright © 2007 Pearson Education, Inc. 37

Insight on Society: Should Web Bugs Be Regulated? Class Discussion n n Are Web Insight on Society: Should Web Bugs Be Regulated? Class Discussion n n Are Web bugs innocuous? Or are they an invasion of personal privacy? Do you think your Web browsing should be known to marketers? What are the different types of Web bugs? What are the Privacy Foundation guidelines for Web bugs? What protections are available? Copyright © 2007 Pearson Education, Inc. 38

Databases and Data Warehouses n n n Database: Software that stores records and attributes Databases and Data Warehouses n n n Database: Software that stores records and attributes Database management system (DBMS): Software used to create, maintain, and access databases SQL (Structured Query Language): Industry-standard database query and manipulation language used in a relational database Relational database: Represents data as two-dimensional tables with records organized in rows and attributes in columns; data within different tables can be flexibly related as long as the tables share a common data element Data warehouse: Database that collects a firm’s transactional and customer data in a single location for offline analysis by marketers and site managers Copyright © 2007 Pearson Education, Inc. 39

A Relational Database View of Ecommerce Customers Figure 7. 12, Page 395 40 A Relational Database View of Ecommerce Customers Figure 7. 12, Page 395 40

Data Mining Set of analytical techniques that look for patterns in data of a Data Mining Set of analytical techniques that look for patterns in data of a database or data warehouse, or seek to model the behavior of customers n Types include: n Query-driven n Model-driven n Rule-based n Collaborative filtering n Copyright © 2007 Pearson Education, Inc. 41

Data Mining and Personalization Figure 7. 13, Page 397 SOURCE: Adomavicius and Tuzhilin, 2001 Data Mining and Personalization Figure 7. 13, Page 397 SOURCE: Adomavicius and Tuzhilin, 2001 b © 2001 IEEE. 42

Insight on Technology: The Long Tail: Collaborative Filtering and Recommender Systems Class Discussion n Insight on Technology: The Long Tail: Collaborative Filtering and Recommender Systems Class Discussion n n What are “recommender systems. ” Give an example you have used. What is “collaborative filtering? ” What is the “long tail” and how do recommender systems support sales of items in the tail? What are some of the reasons that collaborative filtering fails? How can human editors, including consumers, make recommender systems more helpful? Copyright © 2007 Pearson Education, Inc. 43

Advertising Networks Best known for ability to present users with banner advertisements based on Advertising Networks Best known for ability to present users with banner advertisements based on a database of user behavioral data n Double. Click best-known example n Ad server selects appropriate banner ad based on cookies, Web bugs, backend user profile databases n Copyright © 2007 Pearson Education, Inc. 44

How an Advertising Network such as Double. Click Works Figure 7. 14, Page 401 How an Advertising Network such as Double. Click Works Figure 7. 14, Page 401 45

Customer Relationship Management (CRM) Systems Repository of customer information that records all of the Customer Relationship Management (CRM) Systems Repository of customer information that records all of the contacts that a customer has with a firm and generates a customer profile available to everyone in the firm with a need to “know the customer” n Customer profiles can contain: n Map of the customer’s relationship with the firm n Product and usage summary data n Demographic and psychographic data n Profitability measures n Contact history n Marketing and sales information n Copyright © 2007 Pearson Education, Inc. 46

A Customer Relationship Management System Figure 7. 15, Page 403 SOURCE: Compaq, 1998. 47 A Customer Relationship Management System Figure 7. 15, Page 403 SOURCE: Compaq, 1998. 47

Market Entry Strategies For new firms: § Pure clicks/first mover § Mixed “clicks and Market Entry Strategies For new firms: § Pure clicks/first mover § Mixed “clicks and bricks”/alliances n For existing firms: § Pure clicks/fast follower § Mixed “bricks and clicks”/brand extensions n Copyright © 2007 Pearson Education, Inc. 48

Generic Market Entry Strategies Figure 7. 16, Page 404 49 Generic Market Entry Strategies Figure 7. 16, Page 404 49

Establishing the Customer Relationship Permission marketing: Obtain permission before sending consumer information or promotional Establishing the Customer Relationship Permission marketing: Obtain permission before sending consumer information or promotional messages (example: opt-in email) n Affiliate marketing: Relies on referrals; Web site agrees to pay another Web site a commission for new business opportunities it refers to the site n Viral marketing: Process of getting customers to pass along a company’s marketing message to friends, family, and colleagues n Copyright © 2007 Pearson Education, Inc. 50

Establishing the Customer Relationship (cont’d) Blog marketing: Using blogs to market goods through commentary Establishing the Customer Relationship (cont’d) Blog marketing: Using blogs to market goods through commentary and advertising n Social network marketing: Similar to viral marketing n Brand leveraging: Process of using power of an existing brand to acquire new customers for a new product or service n Copyright © 2007 Pearson Education, Inc. 51

Customer Retention: Strengthening the Customer Relationship Mass market-personalization continuum ranges from mass marketing to Customer Retention: Strengthening the Customer Relationship Mass market-personalization continuum ranges from mass marketing to direct marketing to micromarketing to personalized, one-to-one marketing n One-to-one marketing: Involves segmenting the market on a precise and timely understanding of an individual’s needs, targeting specific marketing messages to these individuals and then positioning the product vis-à-vis competitors to be truly unique n Copyright © 2007 Pearson Education, Inc. 52

The Mass Market-Personalization Continuum Figure 7. 17, Page 411 53 The Mass Market-Personalization Continuum Figure 7. 17, Page 411 53

Other Customer Retention Marketing Techniques Customization: Changing the product (not just the marketing message) Other Customer Retention Marketing Techniques Customization: Changing the product (not just the marketing message) according to user preferences n Customer co-production: Allows the customer to interactively create the product n Transactive content: Results from the combination of traditional content with dynamic information tailored to each user’s profile n Copyright © 2007 Pearson Education, Inc. 54

Other Customer Retention Marketing Techniques (cont’d) n Customer service tools include: n Frequently asked Other Customer Retention Marketing Techniques (cont’d) n Customer service tools include: n Frequently asked questions (FAQs) n Real-time customer service chat systems (intelligent agent technology or bots) n Automated response systems Copyright © 2007 Pearson Education, Inc. 55

Net Pricing Strategies Pricing (putting a value on goods and services) an integral part Net Pricing Strategies Pricing (putting a value on goods and services) an integral part of marketing strategy n Traditionally, prices based on: § Fixed cost § Variable costs § Market’s demand curve n Price discrimination: Selling products to different people and groups based on their willingness to pay n Copyright © 2007 Pearson Education, Inc. 56

Net Pricing Strategies (cont’d) Free products/services: Can be used to build market awareness n Net Pricing Strategies (cont’d) Free products/services: Can be used to build market awareness n Versioning: Creating multiple versions of a good and selling essentially the same product to different market segments at different prices n Bundling: Offers consumers two or more goods for one price n Dynamic pricing: 1. Auctions 2. Yield management n Copyright © 2007 Pearson Education, Inc. 57

Channel Management Strategies Channel: Refers to different methods by which goods can be distributed Channel Management Strategies Channel: Refers to different methods by which goods can be distributed and sold n Channel conflict: Occurs when a new venue for selling products or services threatens or destroys existing venues for selling goods n Examples: online airline/travel services and traditional offline travel agencies n Some manufacturers are using partnership model to avoid channel conflict n Copyright © 2007 Pearson Education, Inc. 58

Online Market Research Market research: Involves gathering information that will help a firm identify Online Market Research Market research: Involves gathering information that will help a firm identify potential products and customers n Two general types: n Primary research n Secondary research n Copyright © 2007 Pearson Education, Inc. 59

Insight on Business: Zoomerang Class Discussion What are the advantages of an online survey Insight on Business: Zoomerang Class Discussion What are the advantages of an online survey service? n What features make Zoomerang surveys easy to implement when compared to traditional survey instruments? n What are some of Zoomerang’s weaknesses? n Copyright © 2007 Pearson Education, Inc. 60